As the Senate nears consideration of the Defense authorization bill, three senators have added a new wrinkle to the ongoing debate over the level of contractor executive compensation that should be reimbursed with taxpayer dollars.

On Thursday, Sens. Barbara Boxer, D-Calif.; Chuck Grassley, R-Iowa; and Jay Rockefeller, D-W.Va., introduced an amendment that would lower the current cap from nearly $700,000 for top executives to $400,000 (the level of the president's pay), while extending the cap's reach to all contractor employees. The Obama administration this fall proposed setting the cap at $200,000 for top executives.

"Especially in these difficult economic times, there is no reason taxpayers should fund government reimbursements for private contractor salaries that are over three times the pay earned by Cabinet secretaries," Boxer said in a statement. "Contractors are free to pay their employees whatever they want, but there must a common-sense limit on how much they can earn when taxpayers are footing the bill."

The proposed $400,000 cap applied to a contractor's entire staff was welcomed by the American Federation of Government Employees, which has long sought the change. "Federal employees have had their own salaries frozen for two years to help reduce the deficit, yet nothing is being done to trim out-of-control contractor spending," AFGE National President John Gage said. "Taxpayers should not be on the hook for these outrageous salaries that no one in government earns -- not federal employees, not members of Congress and not even the president of the United States."

But contractor groups worry that the change will deter their ability to attract top executive talent. Trey Hodgkins, senior vice president for national security and federal procurement policy at TechAmerica, told Government Executive that any move to abandon the statutory formula put in place in 1997 could upset contracting companies' balance between salaries on their commercial side and salaries on their public contracts side. He said the Congressional Budget Office examined a similar proposal offered by the Pentagon and determined "it doesn't score as a savings in any way."

Stan Soloway, president and chief executive officer of the Professional Services Council, criticized an earlier version of the Boxer group's proposal offered in October to Congress' super committee. He said the plan "ignores two critical realities," one being a "growing pay gap" between the government and the private sector that challenges the government's ability to tap top talent both in-house and from contractors. Also, he said, the government already has "full authority to reject contractor wages that the government determines are neither fair nor reasonable."

The House version of the Defense bill would extend the $700,000 cap to all employees; the current Senate version would extend it to a broader group of executives. The Senate is likely to take up the Defense bill right after Thanksgiving, sources said.

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